Winmark Corporation, parent of Play It Again Sports, and an early proponent of resale sales before it was fashionable, reported revenues for the fiscal second quarter ended June 29 totaled $20.1 million, fairly flat to revenue of $20.4 million for the comparable period in 2023. When accounting for the planned decline in leasing income, revenue would have been positive for the quarter.
Royalties increased 3.9 percent to $17.8 million in the second quarter of 2024, compared to $17.1 million for the second quarter of 2023. The increase was said to be primarily due to an increase in franchise stores in the second quarter of 2024 compared to the same period in 2023, and to a lesser extent, increases in franchisee retail sales.
“Year-to-date growth in royalties resulted from higher overall store count and, to a lesser extent, increases in per unit performance,” commented Brett D. Heffes, chair and CEO, Winmark Corporation.
Royalty income represented 88.3 percent of revenue for the quarter, up from 84.0 percent in the year-ago period, again due to the lower revenues in the Leasing revenues and the increase in store count.
Leasing income decreased to $0.5 million for the second quarter, compared to $1.0 million for Q2 2023. The decrease was said to be primarily due to a decrease in operating lease income when compared to last year.
“In May 2021, we made the decision to no longer solicit new leasing customers and pursue an orderly run-off of our middle-market leasing portfolio,” the company noted in its second quarter 10-Q filed with the SEC. “Given the decision to run-off the portfolio, we anticipate that leasing income net of leasing expense will continue to decrease through the run-off period.”
Merchandise sales include the sale of product to franchisees either through the company’s Computer Support Center or through the Play It Again Sports buying group. Direct Franchisee Sales decreased to $0.9 million for the second quarter compared to $1.3 million in Q2 2023. The decrease was said to be due to a decrease in buying group and technology purchases by franchisees.
Franchise fees of $0.4 million for Q2 2024 were essentially flat to the second quarter of 2023.
Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales. Cost of merchandise sold decreased to $0.9 million for the second quarter of 2024 compared to $1.2 million in the same period of 2023. The decrease is due to a decrease in Direct Franchise Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the second quarter of 2024 and 2023 was 93.0 percent and 94.0 percent, respectively.
Selling, general and administrative (SG&A) expenses increased 7.4 percent year-over-year to $6.2 million in the second quarter of 2024. The increase was said to be primarily due to increases in advertising related expenses.
Interest expense decreased to $0.7 million for the second quarter compared to $0.8 million for the second quarter of 2023. The decrease was said to be primarily due to lower average borrowing when compared to the same period last year.
The provision for income taxes was calculated at an effective rate of 17.1 percent and 18.8 percent for the second quarter of 2024 and 2023, respectively. The decrease was reportedly due primarily to higher benefits on the exercise of non-qualified stock options.
Net income for the quarter was $10.4 million, or $2.85 per share diluted, compared to net income of $10.4 million, or $2.85 per share diluted in 2023.
Winmark said it ended the second quarter of 2024 with $29.4 million in cash, cash equivalents and restricted cash compared to $32.4 million in cash, cash equivalents and restricted cash at the end of the second quarter of 2023.
Play It Again Sports had 298 franchised stores open at the end of the quarter after opening six stores and closing two stores during the six-month year-to-date period. Total Winmark Corporation franchise stores amounted to 1,336 at quarter-end, up from 1,319 at the end of Q2 2023, with 24 new franchise stores opened during the six-month year-to-date period, and seven stores closed. The company said an additional 77 franchises have been awarded but are not yet open.
The company offers licenses to operate franchises using the service marks Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round. The company also operates a middle market equipment leasing business under the Winmark Capital mark.
Image courtesy Play It Again Sports
